S&P announces stablecoin evaluation system ─ USDT has low score | CoinDesk JAPAN

• Credit rating company S&P releases new stablecoin ranking system. Tether, the leading company with a market capitalization of $90 billion (approximately 13 trillion yen, equivalent to 142 yen to the dollar), has a low score for USDT.
• The ranking system “evaluates the ability of stablecoins to maintain a stable value linked to fiat currencies,” which is the core function of stablecoins.

Tether’s USDT, the world’s largest stablecoin with a market capitalization of $90 billion, is weaker than its rivals in its core function of preserving the value of $1, according to S&P Global Ratings. It was rated as being

S&P, famous for its long history of bond and credit ratings, has introduced a new system for evaluating stablecoins. Stablecoins play an important role in the crypto-asset ecosystem, acting as a bridge between crypto-assets (virtual currencies) and the traditional financial system.

They act as substitutes for traditional currencies such as the US dollar and the euro, and are pegged to fiat currencies (USDT is pegged to the dollar, some are pegged to the euro, etc.). When investors convert their crypto assets into cash, they receive it in the form of stablecoins rather than fiat currency, and stablecoins are also used as a form of digital payment.

According to S&P, its new Stablecoin Stability Assessment aims to “assess the ability of stablecoins to maintain a stable value linked to fiat currencies” Rating on a scale of 5. A score of 1 means the stablecoin is “very strong” and a score of 5 means it is “weak.”

The most popular tablecoin, USDT, received a score of 4 (meaning “constrained”). Circle’s USD Coin (USDC, $24 billion market cap), the second largest stablecoin by market cap, received a 2 (“strong”). This is the highest rating among stablecoins evaluated, with Gemini Dollar (GUSD) and Pax Dollar (USDP) also receiving the same rating.

Quality of reserve assets

In a statement introducing the system, S&P said: “The quality of the assets underlying a stablecoin is a key factor in the final assessment: regulation and supervision, governance, transparency, liquidity and redeemability. “Weaknesses in other areas, including performance, contributed to the low evaluation.”

It remains to be seen whether this evaluation by the traditional finance (TradFi) giant will serve as a guide for investment decisions. For highly regulated TradFi companies, those accustomed to listening to authorities like S&P, USDC is a more transparent option than USDT. USDC is providing more information about the composition of reserve assets and is publishing reports on reserve assets more frequently.

Meanwhile, many of USDT’s users are less concerned about transparency surrounding reserve assets, having continued to hold USDT despite years of questions about the quality of the assets backing USDT. He continues to state that there is no such thing.

If there are $90 billion in USDT in circulation, Tether should have assets of equal value, preferably cash or other safe and stable assets.

Tether has never released a formal audit, but it does publish quarterly “assurance reports” on its assets. Tether had $86 billion in assets at the end of the third quarter, including $72.6 billion in U.S. Treasuries, widely considered the safest investment in the world, backing $83 billion worth of USDT. said.

Concerns were further intensified after Tether and its sister company Bitfinex agreed to pay $18.5 million in 2021 to settle with the state of New York. In its complaint, New York state argued that “the claim that crypto assets were always fully backed by the U.S. dollar was a lie.”

lack of regulation

Regarding Tether and USDT, S&P noted the following:

“Tether Ltd., wholly owned by Tether Holdings Ltd., a company incorporated in Hong Kong and registered in the British Virgin Islands, is a stablecoin issuer and Unlike others, they are not regulated or supervised by any authoritative body.

Some stablecoin issuers are subject to regulatory oversight by authorities such as the New York State Department of Financial Services (NYDFS) and are required to follow the rules set by the NYDFS’ Stablecoin Guidance. This is in contrast to We view USDT’s lack of regulation and oversight as a weakness.”

Of the eight stablecoins evaluated by S&P, none received a score of 1, and USDT, as well as Dai (DAI) and First Digital USD (FDUSD), received a score of 4. TrueUSD (TUSD) and Frax (FRAX) received the lowest rating of 5.

“Looking to the future, stablecoins will become more integrated into financial market structures and the gap between digital and real-world assets (RWA) will increase,” S&P senior analyst Lapo Guadagnuolo said in a statement. “We see it coming to serve as an important bridge. Still, it is important to recognize that stablecoins are not immune to factors such as asset quality, governance, and liquidity.”

According to CoinGecko, USDT is the third-largest crypto asset by market capitalization after Bitcoin (BTC) and Ethereum (ETH).

In March, when the banking crisis hit the United States, several stablecoins failed to maintain their original value and fell.

Circle’s USDC fell to 87 cents, a painful milestone for the industry. USDT also depegged, but not as horribly as the S&P report suggests. The price soared to about $1.06.

The Bank for International Settlements (BIS), a global organization of central banks, said last month that most stablecoins have failed to remain stable. Stability is essential to functioning as a medium of exchange, BIS said, and like S&P, it cited concerns about “transparency regarding the availability and quality of reserve assets.”

As of this writing, Tether has not responded to a request for comment.

｜Translation and editing: Akiko Yamaguchi, Takayuki Masuda
｜Image: T. Schneider / Shutterstock.com
｜Original text: S&P Faults Biggest Stablecoin, Tether’s USDT, as It Debuts New Industry Ranking